In 2021, unicorns, or corporations value billions of dollars, from Southeast Asia will stand out because of increased private equity financing for young technology corporations. Increasing use of smartphones by the younger generation, a growing middle class and widespread web use are driving investment on this sector.
The Covid-19 pandemic has accelerated digitalization, with technology corporations rapidly expanding their teams because of low rates of interest and abundant liquidity. Consumers are rapidly adopting e-commerce, the variety of food delivery platforms can also be growing, and the push for modern technology solutions, especially within the financial sector, is attracting more investment. This is driving investment in young corporations and the expansion of the technology workforce.
The presence of unicorns in Southeast Asia is encouraging more low cost liquidity to flow into the region. Unicorns use investment to rapidly grow their business through discounts and incentives. The primary goal is to realize market share, while financial stability is secondary.
In 2022, the business models of unicorns and startups are affected by the worldwide economic slowdown. The decline in investment has caused adjustments within the technology industry, causing valuations to fall.
The spirit of growth, albeit at a loss, was replaced by an emphasis on sustainability and profitability. Tech corporations, especially unicorns, have cushioned financial losses by shedding 1000’s of staff as a part of restructuring efforts.
In 2022, only eight startups achieved unicorn status, down from 23 in 2021. By the tip of 2022, Southeast Asian tech corporations had secured $2.88 billion in funding, the bottom figure in two years. Private financing also fell 32 percent to $15.8 billion, down from $23.2 billion the previous 12 months.
Faced with a good financing situation, investors, including banks akin to HSBC, have begun to create specialized debt funds to assist finance startups. This allows latest corporations to acquire working capital without reducing founder ownership.
Unicorns are also adapting their strategies to the more limited availability of capital. For example, Coda Payments, a Singapore-based cross-border monetization solutions provider, sold a second share to offer a return to early investors and founders without having to boost latest capital. Coda has entered North American, European and Latin American markets and introduced latest payment services which might be expected to drive profitable growth.
Southeast Asian governments must proceed to implement funding and incentive programs for start-ups. Some countries, including Singapore, have done this through the event of programs akin to Startup SG, which supports high-tech corporations, seed financing, commercialization and technology development. Under this program, the federal government, along with external investors, invests in promising start-ups.
Another challenge for startups within the region is attracting one of the best talent. Larger ASEAN countries akin to Indonesia, the Philippines and Vietnam have the potential to offer tech labor. Indonesian President Joko Widodo has pledged to develop local talent with the support of world corporations akin to Google, Huawei and Gojek. Areas akin to artificial intelligence, data analytics and software engineering are developing.
According to the IT Market Report, there are over 400,000 IT engineers working in Vietnam, and universities within the country educate about 50,000 IT graduates yearly. Talent in Vietnam can equip startups with expertise in blockchain, machine learning, artificial intelligence and data science. The Philippines also has English-speaking tech talent supporting startups, especially within the areas of cybersecurity, e-commerce and fintech.
The potential of unicorns is amplified by a significant slice of Southeast Asia’s population that’s unbanked or underbanked. Fintech plays a crucial role in introducing latest and modern financial and insurance solutions to this segment. In the financial space, Vietnamese buy now, pay later platform Fundiin, founded in 2019, operates in a rustic where bank card penetration is just 5%. The platform allows consumers to make purchases by paying in three monthly installments.
The lifestyle industry can also be growing in Southeast Asia, with a big middle-class base. Examples include Partipost in Singapore, founded in 2016, and Social Bella, an internet beauty service provider in Indonesia.
Innovation can also be entering the food industry in Southeast Asia. Founded in 2018, Shiok Meats focuses on laboratory breeding of shrimp and crab. As a part of the choice food movement in Asia, corporations like this have the potential to unravel the worldwide food crisis of the long run.
Unicorns and tech startups must adapt their business models to survive and thrive within the face of current economic uncertainty, which incorporates streamlining operations, improving corporate governance, and smarter attracting and retaining talent. They may reap the benefits of the present global uncertainty. As technological competition between the US and China develops, Southeast Asia is becoming a lovely destination for foreign investors and firms.
However, the region has also demonstrated resilience despite economic challenges, supported by a mature investment ecosystem that can proceed to drive unicorn growth. Increased government policy and funding for tech startups can be helpful, especially in Indonesia. The diversity of entrepreneurs within the region can also be a key factor driving innovation.
Reference: East Asia Forum
